The major UK banks would be able to withstand another financial crisis, according to the Bank of England.
A stress test of eight banks and building societies found that they were resilient to a “severe stress scenario” that includes inflation rising to 17%, the unemployment rate increasing to 8.5% and house prices falling by 31%.
The test included HSBC, Barclays, Standard Chartered, Lloyds, Natwest, Santander, Virgin Money and Nationwide, which together account for 75% of the lending to the UK economy.
“Higher interest payments on loans mean some borrowers may struggle with their repayments, which increases the risks faced by banks,” the central bank’s Financial Stability Report stated.
“But UK banks are resilient and are strong enough to support their customers.”
Rising interest rates are affecting more households as fixed-rate mortgage deals expire, pushing up the aggregate mortgage debt-servicing burden, the report noted.
However, although many households will face a big increase in mortgage costs, the proportion of households with a high mortgage burden relative to their income will remain below the peak reached during the 2007/2008 financial crisis.
